- Oil man Andrew Mackenzie named BHP Billiton CEO
- BHP Billiton announced this week that CEO Marius Kloppers will step down in May and will be succeeded by Andrew Mackenzie, the current head of the company’s non-ferrous division, who worked for BP for 22 years and who worked for Rio Tinto prior to joining BHP Billiton.
- Sources: BHP Billiton press release; ABC interview; Youtube Reutersvideo
- Iron ore prices at 16-month high
Trends & Implications:
- BHPB’s appointment of a chief executive with extensive experience in the oil and gas business signals a further shift of focus from mining to natural resource extraction in general. Given the importance of cost control in the coming years, and considering the company’s asset base in oil and gas and the limited understanding of the oil and gas industry by most miners, appointing an insider with good knowledge of the full range of assets is a logical choice.
- The increase of iron ore prices is expected to be a relatively short-term development driven by weather expectations and the annual cyclical demand of Chinese importers. which peaks in Q4 and Q1. Long-term price expectations are still much below the current level as additional production capacity is being added at a high pace.
2013 | Wilfred Visser | thebusinessofmining.com
Top Stories of December:
- Freeport diversifies further into oil & gas
- Copper miner Freeport McMoran surprised the market by acquiring two American oil & gas companies for approx. $9bn, taking on a lot of target debt to make a total deal size of approx. $20bn, the second largest acquisition in the industry this year.
- Freeport did not request shareholder approval for the diversifying acquisitions, leaving a large part of the shareholder base unhappy with the deal and the stock price dropping approx. 15%.
- Sources: Freeport presentation; Wall Street Journal; Financial Times
- Xstrata puts Tampakan project on hold
- Xstrata’s $5.9bn Tampakan copper project in the Philippines is put on hold while waiting for government approvals: the federal government doesn’t want to give the go ahead before the mining law is reformed, and the local government is opposing the issuance of an environmental permit based on a ban on open pit mining.
- Sources: Reuters; Sagittarius / Xstrata
- Bumi, Bakrie, and Rotschild continue their fight
- The board of Bumi plc has indicated that it favors the Bakrie offer to buy out the assets of the Indonesian coal producer over Rothschilds offer to increase the stake in those assets. Bakrie’s offer implies that the shared ownership of assets by Bumi and Bakrie comes to an end.
- The board also indicated that it does not intend to sell the stakes in Berau to Bakrie, which would mean the company does not completely revert to a cash shell.
- Sources: Financial Times 1, 2; Jakarta Post
Trends & Implications:
- Deloitte published its annual report with the top trends in the mining industry for the coming year: on top of the list is the continued high cost of doing business, which is forcing many companies to reconsider development projects (see Tampakan above). The full list of trends is:
- Counting the costs: Paying the price of bullish behavior
- Managing demand uncertainty: Conflicting market indicators magnify volatility
- Capital project deceleration: Quality trumps quantity in the project pipeline
- Preparing for the M&A storm: Market indicators point to rising deal volumes
- Governments eye the mining prize: Resource nationalism remains
- Combating corruption: Miners are being held to higher standards
- Climbing the social ladder: A new level of responsible behavior
- Plugging the talent gap: Skills shortages still loom
- Playing it safe: Using analytics to generate insights and improve safety outcomes
- At the IT edge: Getting the most out of emerging – and existing – technologies
- Xstrata’s decision to put the Tampakan project, one of the largest development projects in the copper industry, on hold fits two trends: the increasing importance of alignment with both federal and local governments in developing countries, especially around when governments and legislature are changing; and the hesitance to undertake any large investments in a time of rising costs and uncertainty around demand growth.
2012 | Wilfred Visser | thebusinessofmining.com
Check my latest column in the free online journal The International Resource Journal on the importance of iron ore derivatives.
“BHP Billiton Ltd. said Thursday it plans to acquire Petrohawk Energy Corp. for more than $12 billion in cash, giving the Anglo-Australian mining company access to large shale assets in Texas and Louisiana in one of the largest deals of the year. BHP will pay $38.75 per share, a 65% premium to Petrohawk’s closing price on Thursday of $23.49 a share.
The deal marks an important strategic step for BHP, which last year was rebuffed in a highly politicized $38.6 billion bid for Canada’s Potash Corp. of Saskatchewan Inc. One of the largest global mining companies, BHP has been eager to spend its war chest to diversify from minerals and mining into oil and gas. The Petrohawk deal will double BHP’s resource base in oil and gas, allowing the company to increase its production by about 10% for the rest of the decade, the company said.”
- Key synergies targeted in the deal are in financing new projects: Petrohawk has the reserves, and BHP brings the funds to develop them. The premium of 65% reflects this increased investment, as it values the company on 7.5x PE rather than 4-5x PE.
- Last February BHP bought a set of shale gas assets from Chesapeake Energy for close to $5bln.
- In a poll on this blog in February 57% of respondents thought BHP should expand further in the oil & gas arena.
- The $12bln tender offer is all-cash, largely solving BHP’s ‘problem’ of a huge cash pile that some people rather had seen returned to shareholders. With current high iron ore prices the company is generating cash much faster than it is able to invest in organic growth.
- The acquisition increases the weight of the petroleum business in BHP’s portfolio and makes BHP enter in the top 10 of largest petroleum companies in the USA. This development follows the entry of various large petroleum companies in the mining area through oil sand projects. Still it is unclear if more miners will position themselves as ‘large scale commodity producers’ active in both mining and petroleum businesses.
©2011 | Wilfred Visser | thebusinessofmining.com
“BHP Billiton Ltd. said Monday it is acquiring Chesapeake Energy Corp.’s Fayetteville shale gas holdings in Arkansas and some pipeline assets in a deal totaling about $4.75 billion in cash.
Earlier this month, Chesapeake announced plans to sell about 487,000 acres of its Fayetteville shale holdings as part of a plan to reduce its debt by 25% in two years. The deal would increase BHP’s gas reserves and resources by 45%.
This acquisition would mark BHP’s first shale gas asset. The company, primarily a miner, gets about 20% of its profits from oil and gas. Most of its assets are in Australia, the Gulf of Mexico, Algeria and Pakistan. The Arkansas asset would likely supply natural gas mostly to utility companies.”
- ExxonMobil started a run to acquire shale gas assets in December 2009 by paying $41bln for XTO Energy (incl. taking on $10bln debt). The deal was made contingent on the senate investigation into hydraulic fracturing; the method used to enhance production of gas from shale.
- BHP pays $1.77/Mcf of proved gas reserves, about 30% below the price paid by ExxonMobil for XTO, but in line with recent other acquisitions in the industry.
- BHP can still expand in the oil and gas industry without triggering the regulatory roadblocks it faces when trying to expand its position in many mined commodities. It would therefore not be unlikely if it makes more acquisitions in the industry. Some analysts critique the diversification of the company, arguing that shareholders have little benefit from the combination of mining and oil/gas in one firm.
- The natural hedge created by combining mining & oil/gas (benefiting from higher oil/gas prices on the sales side while being hurt at the same time in fuel and electricity prices) does enable the company to promise a steady cash flow to investors.
©2011 | Wilfred Visser | thebusinessofmining.com